13. Income Taxes

The provision for income taxes includes the following:



	Year Ended December 31,
	2017			2016			2015
	(Dollars in thousands)
Current provision for income taxes:
Federal	$	10,243		$	10,321		$	10,822
State	3,030			3,375			3,386
	13,273			13,696			14,208
Deferred provision (benefit) for income taxes:
Federal	2,341			(506		)	(1,522		)
State	(224		)	(166		)	(153		)
	2,117			(672		)	(1,675		)
Provision for income taxes	$	15,390		$	13,024		$	12,533

The effective tax rate differs from the federal statutory rate of 35% due to the following items:



	Year Ended December 31,
	2017			2016			2015
	(Dollars in thousands)
Income before taxes of taxable entities	$	32,531		$	33,950		$	33,911
Provision for income taxes at federal statutory rate	$	(11,386	)	$	(11,883	)	$	(11,869	)
(Increases) decreases in tax resulting from:
Provisional rate adjustment - tax reform	(3,190		)	—			—
State income taxes, net of federal benefit	(1,860		)	(1,977		)	(1,979		)
Manufacturing deduction	958			1,142			1,274
Other	88			(306		)	41
Provision for income taxes	$	(15,390	)	$	(13,024	)	$	(12,533	)
Effective tax rate	47.3		%	38.4		%	37.0		%

With the enactment of the Tax Cuts and Jobs Act (the "Tax Act"), the corporate federal income tax rate dropped from 35% to a flat 21% rate effective January 1, 2018. The SEC staff issued Staff Accounting Bulletin 118 ("SAB 118"), which provides guidance on accounting for the tax effects of the Tax Act and provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

As of December 31, 2017, we have completed the majority of our accounting for the tax effects of the Tax Act. As a result of the rate change, the Company was required to revalue its net deferred tax asset at December 31, 2017 and recorded a provisional adjustment to reduce its value by $3.2 million, which is included in the tax provision for 2017. The provisional amount recorded is subject to revisions as we complete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, Internal Revenue Service ("IRS"), FASB, and other standard-setting and regulatory bodies. Our accounting for the tax effects of the Tax Act will be completed during the one-year measurement period.

The Company accounts for income taxes in accordance with ASC 740, which requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statements and tax bases of assets and liabilities existing at each balance sheet date using enacted tax rates for the years in which taxes are expected to be paid or recovered.

The components of our deferred income tax asset, net are as follows:



	December 31,
	2017			2016
	(Dollars in thousands)
State taxes	$	633		$	1,229
Reserves and accruals	1,893			2,407
Intangible assets	207			359
Share based compensation	1,585			2,118
Inventory	627			1,150
Investments in joint ventures	1,411			1,290
Depreciation and amortization	(39		)	(119		)
Deferred tax asset, net	$	6,317		$	8,434

Each quarter we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable under ASC 740. We are required to establish a valuation allowance for any portion of the asset we conclude is more likely than not unrealizable. As of December 31, 2017, no valuation allowance was recorded. Our assessment considers, among other things, the nature, frequency and severity of prior cumulative losses, forecasts of future taxable income, the duration of statutory carryforward periods, our utilization experience with operating loss and tax credit carryforwards and the planning alternatives, to the extent these items are applicable.

The Company classifies any interest and penalties related to income taxes assessed as part of income tax expense. The Company has concluded that there were no significant uncertain tax positions requiring recognition in its financial statements, nor has the Company been assessed interest or penalties by any major tax jurisdictions related to any open tax periods. We are subject to U.S. federal income tax examination for calendar tax years ending 2014 through 2017 and various state income tax examinations for 2014 through 2017 calendar tax years.